Stocks: Late-Day Turnaround

The S&P 500 rose 0.5%, to 2738.97, while the Dow Jones Industrial Average advanced 93.85 points, or 0.4%, 24,895.21. The Nasdaq Composite gained 0.4%, to 7427.95.

The administration's final tariffs look a lot like what has already been reported: a 25% tax on steel, a 10% tax on aluminum, and exemptions for Canada and Mexico, though that will depend on the course of Nafta negotiations. My guess: The fact there will be no more surprises, at least for the time being, provides relief for market participants expecting the worst.

But what if this is just the beginning? BNP Paribas Chief Market Economist Paul Mortimer-Lee worries that "a trade war can start with a single shot," and that may already have been fired. And there may be more to come, with the U.S. report on intellectual property finding fault with China a real possibility. If that occurs, tariffs from both sides could be the result. The result: full-blown protectionism.

Mortimer-Lee is worth quoting in full:

Here’s the real danger with a move to protectionism. The whole global agenda switches and lobbyists who want their industries to be favoured by government protectionism (so much for deregulation) quickly emerge. If steel is protected, why not industries that produce finished goods that contain a lot of steel? After all, foreign steel prices are likely to fall as a result of US tariffs and foreign steel-using industries will become more competitive relative to those in the US. Abroad, exports that are now locked out of the US are likely to be diverted to other markets, subduing prices and amplifying the foreign voices calling for protection from this “dumping.” Once this snowball starts rolling, it can go a long way and may be difficult to stop. Firms’ past investment decisions are falsified, some may go bust and domestic production may respond relatively little if the tariffs are expected to be reversed at some stage.

The result, he says, would be slower global economic growth, rising inflation, and resources going where they wouldn't be best used. "Effectively, we would have an adverse global supply shock," Mortimer-Lee says. "Uncertainty would increase, deterring investment and encouraging precautionary savings while also risking a correction in risk markets due to the demand for higher risk premia."

Let's hope it doesn't come to that. —Ben Levisohn

Time to Dump Utilities?

Stocks started the day on a higher note, thanks to a softer tone on tariffs, and with markets ending in positive territory too, it appears that investors are breathing a sigh of relief. That means that their risk appetite is likely to increase, too, and so it's time to bid adieu the utilities sector.

So writes Evercore ISI strategist Dennis DeBusschere, who closed his Overweight position on the utilities sector in a note this morning.

DeBusschere writes that this comes as labor markets appear to continue to tighten and inflationary pressures increase, hinting at ongoing strength in global economic activity. And even U.S. productivity growth, though still weak, has been trending up along with inflation, as the Federal Reserve moves toward a more-normalized monetary policy.

With financial conditions continuing to tighten, DeBusschere thinks that bond yields will trend higher in 2018, leaving little relief for utilities and other sectors that tend to trade on rates. Don't be surprised if utilities, which have been the worst performers in the S&P 500 since the second half of last year, start underperforming again.

Why Wheat Prices Could Rise

While a severe drought in South Africa has grabbed headlines—Cape Town has been at risk of having its water turned off—it's not the only region suffering from a shortage of water. The American Midwest and parts of Argentina are also struggling with low rainfall, which could push agricultural commodity prices even higher, write strategists at Pavilion Global Markets.

Crop prices have already started rising. Wheat futures have gained 17% so far this year, while soybean futures have risen 10%, and supply constraints could cause those prices to rise even further, Pavilion says.

Sentiment about the drought continues to deteriorate, and some of that pessimism is already beginning to leak into the agribusiness sector, weighing on agricultural machinery and fertilizer stocks. Weaker wheat production forecasts from the U.S. Department of Agriculture won’t help, warns Pavilion.

Pavilion expects that there will be a divergence in crop prices, with higher wheat demand pushing that commodity higher than soybeans, at least in the near term. —T.R.

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The Dow Jones Industrial Average finished up 72 points today, and the S&P 500 broke its four-day losing streak but some strategists contend it's time to get defensive. We also look ahead to Nike's earnings, and consider whether electric vehicles will help spur the next commodity boom.

After the Bell: Dow Gains 93 Points as Tariffs Cheer Market

After doing nothing for much of the day, the Dow Jones Industrial Average finished near its high of the day.

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